Calix, Inc. (CALX) Q1 2026 Earnings Report, Transcript and Summary

Greetings, everyone, and welcome to the Calix First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Nancy Fazioli, Vice President of Investor Relations. Nancy, please go ahead.

Thank you, Alicia, and good afternoon, everyone. Thank you for joining our First Quarter 2026 Earnings Call. Today on the call, we have President and CEO, Michael Weening and Chief Financial Officer, Cory Sindelar. As a reminder, today after the market closed, Calix issued news releases, which were furnished on a Form 8-K along with our stockholder letter and were also posted on the Investor Relations section of the Calix website. Today's conference call will be available for webcast replay in the Investor Relations section of our website. Before I turn the call over to Michael for his opening remarks, I want to remind everyone that on this call, we will refer to forward-looking statements including all statements the company will make about its future financial and operating performance, growth strategy and market outlook, and that actual results may differ materially from those contemplated by these forward-looking statements. Factors that could cause actual results and trends to differ materially are set forth in the first quarter 2026 letter to stockholders and in the annual quarterly reports filed with the SEC. Calix assumes no obligation to update any forward-looking statements which speak only as of their respective dates. Also on this conference call, we will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in the first quarter 2026 letter to stockholders. Unless otherwise stated, all financial information referenced to this call will be non-GAAP. With that, Michael, please go ahead.

Thank you, Nancy. It was another incredible execution quarter for the Calix team. Record revenue with strong demand continuing into 2026 with customers. At the end of March, we completed the migration of all existing customers to the third generation of the Calix platform. Launching on Google Cloud, thereby enabling the expansion of our capabilities and the markets that we target. As important, those customers who expand their partnerships with Calix on Calix One begin to see the benefits rapidly as agent workforce and our AI native platform comes to life. The impact of AI will now start contributing to our customers' success by helping them transform their operations, allowing their teams to add capacity and capability with AI and accelerate experiences that they need to differentiate in the markets they serve, thereby enabling their teams to compete and win. Today's call is focused on the quarter and our 2026 outlook. Tomorrow at Investor Day, we'll go deeper on how Calix One expands the opportunity of our model with proof directly from customers who will attend the event and are ready to share. With that, I'll turn it over to Cory to walk through the results and guidance, and then we'll take your questions. Cory, over to you.

Thank you, Michael. In the first quarter of 2026, Calix delivered yet another quarter of record revenue of $280 million, marking a sequential increase of 3%, driven by continued strong demand for our platform. This quarter, we welcomed 14 new customers, reinforcing our ongoing efforts to grow our customer base, while supporting their expansion within the local communities they serve. Remaining performance obligations were $376 million, down 2% sequentially and up 11% year-over-year. The sequential decline related to a robust fourth quarter comparison and our focus on completing the migration of customers to the new third-generation platform. Current RPOs in the first quarter were a record $157 million, representing a 3% sequential increase and a 22% rise from the same period last year. We anticipate that RPOs will reaccelerate in the second half of 2026 as we gain momentum with Calix One, underscoring the strength of our business model as customers, focused on delivering exceptional experiences, adopt our platform, add incremental offerings and win new subscribers. Non-GAAP gross margin was 57.2%, down 80 basis points sequentially due to investment in our dual cloud environments as we migrated customers to our third-generation platform. Compared to last year, non-GAAP gross margin increased 100 basis points. Our balance sheet remains strong. DSO at the end of the first quarter was 36 days. Inventory turns remain steady at 3, reflecting continued inventory investments to address robust demand and building supply continuity, and we generated free cash flow in the quarter of $7 million. We also invested $171 million to buy back 3.3 million shares of our common stock at an average price of $51.34. Furthermore, the Board today authorized another $100 million to be added to this program. This investment speaks to our belief in the tremendous opportunity ahead and our commitment to creating lasting value for our stockholders. We finished the quarter with a strong cash and investment balance of $243 million. Turning to guidance. Our revenue guidance for the second quarter of 2026 is between $287 and $293 million, representing a 4% increase at the midpoint over the prior quarter. This reflects continued robust demand trends and a modest benefit from recapturing a portion of the higher memory costs via a memory surcharge. For the year, we expect revenue to grow between 15% and 20%. With demand/supply disconnect, so large related to memory components. There will inevitably be some companies that will come up short. Our first priority is to ensure that we have adequate supply such that our customers can continue to add subscribers and take market share. Our advanced purchasing had allowed us to avoid higher memory component costs during the first quarter. However, that advanced supply has run its course, and we now face market prices. We are partnering with our customers to share in the higher memory costs, by initiating a surcharge, albeit it is a partial cost recovery and without adding gross profit is one way we can help our customers in this unfortunate memory supply environment. Our gross margin guidance for the second quarter of 2026 is between 24 -- sorry, 54.25% and 57.25%. Reflecting the effects of higher memory component costs, the impact from surcharges and the customer and product mix. The decline in appliance gross margin is expected to be offset by improvement in software and service gross margin as the dual clog costs abate, and we optimize the current cloud environment. For the year, we expect our non-GAAP gross margin to decline between 50 and 150 basis points. For non-GAAP operating expenses, we forecast $128 million at the midpoint in the second quarter of 2026, which is a sequential increase of $1 million. This increase is mainly driven by our efforts to expedite AI functionality and enhancements to the Calix One platform. Importantly, we continue to expect to return to our target financial model for operating expenses by the end of 2026, improving our operating leverage and profitability. Tomorrow morning, we are excited to host our first Investor Day in 4 years at the New York Stock Exchange. The event will look -- will provide a look into our strategy, innovation roadmap and the long-term prospects that drive our confidence for the future. In addition, we will outline our key targets for growth, profitability and cash flow, giving investors benchmarks to track our progress and understand how we are positioning Calix for sustained success in the coming years. Nancy, let's open the call for questions.

Operator, we're ready for questions.

[Operator Instructions] Our first question comes from the line of Samik Chatterjee with JPMorgan.

I have a couple. Maybe if I can just start with you, Cory, on the gross margin guide here, just to fully understand the drivers. Once you put the surcharges through, are you expecting a recovery recovery in the back half of the year in relation to gross margins on the appliances as some of these surcharges flow through on your revenue line. And then as if memory does continue to sort of go higher memory costs continue to go higher, what's the plan here because you're not passing through the margin on the cost increase. So what prevents more downside on the margin percentage as you go through the year or if memory costs continue to increase? And I have a follow-up.

Yes. Thank you for the question. So our plan is to recover the costs. And so if there are further cost increases, we would adjust the surcharges accordingly, the effect of the surcharges by themselves, put a headwind to the gross margin. I estimate that in 2026, the effect of the surcharges for here to the end of the year, represent a 200 basis point headwind because you're adding a large amount of revenue at 0 points of margin through.

Okay. Got it. And then maybe just on the demand side, you did mention sort of stronger demand from your customers. And I'm sort of trying to parse out, obviously, haven't been able to do the math yet in terms of you're raising the revenue guide from earlier talking about 10% to 15% growth on the top line to now 15% to 20% and you also are outlining stronger sequential growth for 2Q than you have in the last couple of quarters. How much of that is stronger customer demand that you're seeing in terms of orders versus the benefit from the price increase, which you're referring to as a sort of decently large price increase that's going to go through the revenue line as well. So just maybe help us break that down? And what are you seeing in terms of customer orders that's maybe giving you a bit more confidence as well.

Yes. Great question. The majority of the quarter-over-quarter increase is due to customer demand and a lesser portion is the surcharges. We are rolling out those surcharges now they'll take effect in May. So we're not getting a full quarter of recovery this current quarter. But -- so consequently, the majority of that increase in revenue is coming from increased demand and to a lesser extent, memory and price increases.

Our next question comes from the line of Scott Searle with ROTH Capital Partners.

Just wanted to dive in on the gross margins related to the dual cloud cost. It looks like it was in the $3 million to $4 million range. Just want to clarify, does that go away completely by the second half? How should we think about modeling that? And then I had a follow-up.

Yes. Great question, Scott. That's the good news story is that -- we've got all the customers migrated onto the new cloud. And so yes, the dual cloud environment is done. So it's done. As we sit here today, it's done. So the penalty that we incurred happened in the first quarter. I think you got it sized about right. And so what you would expect to see on that line is for it to return back to levels that we're previously at I would expect for the next quarter or 2, we'll be back at record levels and continuing the progress that we've been making on that line.

So in terms of my follow-up, I've got a lot as it relates to the One platform, but I'd rather than preempt tomorrow, I'll save it for then. So maybe if I just could fiber availability in general, how is that impacting demand? And it's been interesting to see some of the Starlink numbers that have filtered to the marketplace where they've gotten some traction in places that I really didn't expect that they would in terms of more dense suburban environments than you would ordinarily think that they participate. I'm wondering what you're seeing in terms of your customer response on that front in terms of their demand, their rollout plans? Is this pushing them to accelerate? How is that kind of factoring into the calculus in terms of the overall market demand of your core customers?

I spent a lot of time with customers. It's Michael. And while the startling thing is there, you generally see it in real areas where there's -- when you have a 6-mile run to actually join a farm, obviously, Starlink is a good example there. I don't hear anyone saying I need to accelerate my rollout of fiber to compete. But for us, frankly, another competitive pressure is a good thing for Calix because if you think about which we'll talk about tomorrow, we try to think about the experience-based nature of what we're doing and how we help our customers differentiate and transform their business to win subscribers and grow revenue by delivering an amazing experience, whether it's a consumer small business or multi-dwelling units, frankly, that's good for our our business is because that gets them listening if in the past, they didn't feel that competitive threat. So it's all good.

Mike, and just fiber availability, what our customers saying? And maybe if I could sneak one other. I think you talked about guidance for 15% to 20% this year. 15% is really just kind of bumping along at the level you're at today. So what kind of visibility do you have in terms of deployments into the second half? Are you starting to feel pretty good about the lower end of that range?

I haven't heard anything with fiber availability have you?

There's been some talk, a little bit of like sub...

Yes. BEAD but we expected that as all that be money starts flowing, that there's going to be some supply right? So Cory, any comments on that?

Yes, Scott, I'm either more bullish or more negative on BEAD at the moment. I would say my temperature is about the same. It's progressing as we would expect. We've got tens of millions of dollars forecast in the second half of '26 related to BEAD. We're starting to see states actually start receiving their money. So things are kind of working its way out. We are not hearing that fiber shortage is causing a significant impact to BEAD demand as we're hearing it.

Our last question comes from the line of Christian Schwan with Craig Cowen Capital Group.

Congrats on the good quarter. Just for foot clarity, our previous guidance was 10% to 15% topline and near the high end. And now we've taken it to 15% to 20%, should we just assume that that's the surcharges that is going on there's incrementally better visibility and continued strong demand, but demand has been accelerating beyond what you thought 90 days ago is it? Or is it?

It's yes and yes to that, Christian. So clearly, the effect of surcharges is going to move us up into that higher part of the range. But we're also seeing some of the best demand that we've seen.

Yes. And that's we'll talk about tomorrow on Investor Day, right? So for us, as everybody knows, when you're rolling out the next stage in the platform going through that evolution, there can be unexpected challenges. We had gotten pretty hard for being done in Q1, and I'm really proud to say that the team got through it. So having gone through that and not facing any incremental delays that allows Cory and I had to sit on this call and be very bullish about the future for 2026 because this is what our team has worked towards for -- since November of 2023, we've been pounding away at this for over 2.5 years. And now our AI native platform is got 12 -- more than 1,200 customers loaded. And tomorrow, we're going to talk about how fast we're going to go and how we're going to go skiing out into that. And I think blue ocean of incremental TAM and compete aggressively to grow the company. So yes, you're hearing me be very bullish as you'll hear tomorrow during Investor Day.

Great. And then my just quick follow-up question is, as it relates to BEAD, congrats on rightly getting some of that dollars generated for the company. I think you said tens of millions in the second half of calendar '26. What is the internal plan for what year you think will be the peak of that program? And what type of annual revenue number should we be thinking about?

So Christian, we've talked about that in the past. We've done some high-level math. I think that you'll start to see this thing ramp more significantly in 2027, probably peaks in '28. And I don't think that I would want to kind of put a number on it, but it's it's potentially high tens of millions. As we said about BEAD/see that as an accelerated on top of the core growth model, right?

Our next question comes from the line of George Notter with Wolfe Research.

This is Karen on for George. Just a quick question. Any update on traction with Tier 1 customers on the cloud side?

None that we're willing to share.

Okay. Got it. And then -- any comments on the quarter-on-quarter uptick in appliances. I assume -- I think you guys have mentioned in the past that DVS takeouts are mostly done, if not all out. But what drove that is the quarter-on-quarter?

Customer demand for our products because of the fact that we're better than our competitors. Yes. And it was within our guidance that we provided/so there were no surprises in the quarter. We added customers, and we'll talk about that tomorrow on Investor Day when we walk through the core drivers of growth.

Our next question comes from the line of Tim Savageaux with Northland Capital Markets.

Maybe a couple of questions. First, I don't know if you mentioned it upfront, but if you can go through the BEAD commentary, again. Was it any more granular than tens of millions in the second half and maybe on a somewhat related note, there's been some news out of the FCC recently about foreign-made routers in the U.S. and some exemptions there. I wonder if any of that has any implications for Calix.

Yes, Tim, on the BEAD piece all we said is that we would we start to see revenue that I'm either more bullish or less bullish I'm even keeled through last quarter to this quarter. Things are progressing along as you would expect it to. We think that then translates into tens of millions of dollars in the back half of this year. And obviously, the ramp will start next year. In terms of FCC regulation it appears to be that the timing is fairly quick, kind of measured in weeks, not months. So we would expect to be receiving our conditional approval here soon. Calix has sought received various government approvals over Calix's 26-year history, expect no difference here. But I would also point out that FCC approval alone doesn't really differentiate your product at all, where Calix wins is after you deploy with automation and intelligence and subscriber experience that lowers OpEx and drive business outcomes.

Which we'll talk a lot about at tomorrow at Investor Day is that, as Cory said, in the last 26 years, we've done this frequently through a myriad of government programs and as a proud American company. And we're actually going to show you tomorrow what the power of it and Agentic and AI native, Agentic ready platform, how that's going to help us transform our customers' business, and that's going to drive outcomes. So press release on FCC is kind of irrelevant. We do it.

Okay. But maybe just a quick follow-up there. I mean, is the timing of the conditional approval, having any impact on the business at all or others have...

Absolutely not. They're actually the -- the FCC is actually moving really quickly. So we anticipate no issues whatsoever. It's a nonevent. We will do this quickly because we're already well down the cycle. And so we won't press release it. We'll just -- well all of our customers we made aware quickly as that resolves itself.

So Tim to be a little bit more clear on it, any existing product that's shipping is not at risk. So there's not having any impact on current shipments. It is the next release in terms of new products coming into the marketplace. And so we have a number in the pipeline, and those are what we've applied for conditional approval. So expect to get those approvals. And it appears that the FCC is moving pretty fast, which is great, which we were surprised at how well how fast is the process is going. It's great. So we don't anticipate there being any problems as a result of that -- of those new rules.

We have reached the end of our question-and-answer session. I would now like to turn the call back over to Nancy Fazioli, for closing remarks.

Thank you. Calix will participate in several investor events during the second quarter, most importantly hosting our Investor Day at the New York Stock Exchange tomorrow as referenced. Information about these events, including dates and times and publicly available webcast will be posted on the Events page of the Investor Relations section of calix.com. Once again, thank you to everyone on this call and webcast for your interest in Calix, and for joining us. This concludes our conference call. Have a good day.